All posts by Anne Freedman

Social Media Strikes Again

Calling himself @theoldcfo on Twitter, Gene Morphis got done in by his use of new media — Twitter and Facebook, in particular.

Morphis, who was CFO of Francesca’s Holding Corp., made the mistake of posting inappropriate information about company doings, according to the Wall Street Journal:

On March 6, for instance, he tweeted: “Dinner w/Board tonite. Used to be fun. Now one must be on guard every second.” The following day, he posted “Board meeting. Good numbers=Happy Board.”

On March 13 Mr. Morphis posted on Facebook about a company earnings call: “Earnings released. Conference call completed. How do you like me now Mr. Shorty?”

Months earlier, on Dec. 5, he posted about another investor call. “Cramming for earnings call like a final. I thought I had outgrown that…”

Mr. Morphis also posted about an investor road show on Jan. 27: “Roadshow completed. Sold $275 million of secondary shares. Earned my pay this week.” (The retailer held an initial public offering last July.)

The company said it launched an internal investigation with the assistance of outside counsel after discovering the activity on Friday afternoon. The company said Mr. Morphis was “terminated for cause.”

Francesca’s did have a social-media policy, according to the article, but creating a workable policy is no easy task in this ever-changing social-media world.

We recently ran an article on HREOnline™ that addresses the “Legal Ambiguities of Social Media,” by Seyfarth Shaw attorneys Jeffrey Berman and Erin Dougherty Foley. It’s definitely worth a read.

What Have You Done For Me Lately?

There is an “unbelievable focus on today” that hampers too many HR leaders and their organizations, says Mike Burniston, leader of the human capital practice in the Americas for Mercer.

Just imagine the employee turmoil at Facebook, he says. “They started out thinking Friday they were set for life and on Tuesday, they already have you six feet under. … I mean how shortsighted” can some people be, he asked.

“This fixation on the now, unfortunately, does permeate corporate walls and how organizations conduct themselves,” and it leads to budget slashing for R&D, new venture groups and strategic development — “all to focus on the next quarter.”

Adding to the difficulty is the inability in many organizations to even discern their long-term strategic goals — and if the organization as a whole can’t do that, he asks, how can HR effectively contribute?

One way some HR leaders are contributing, Burniston says, is by ensuring managers and business-unit leaders are aware  of the importance of people strategies — and that they know how to act on that awareness  to become better leaders of people.

For some reason, he says, it’s easier for business-unit leaders to think like CFOs or chief marketing or sales executives than it is to think like a CHRO.

“For some reason, it’s a blind spot for too many leaders of the organization,” Burniston says, “and I think it will increasingly be a more important capability to fulfill.”

Burniston was co-presenting a session on Tuesday afternoon with Romita Ghanara, director of compensation at American Express, on simplifying global pay management infrastructures at WorldatWork’s Total Rewards 2012 conference.

Simplifying Executive Comp

Executives from the Center on Executive Compensation of the HR Policy Association headed a session at WorldatWork’s Total Rewards 2012 conference on Tuesday to offer some insights into best ways to structure pay-for-performance strategies — and how to best tell their story to investors.

Nearly all companies this year received approval on their say-on-pay votes — about 89 percent — but seven have failed so far, said Timothy Bartl, president of the Center, but he noted: “No company that failed in 2011 has failed in 2012.” That indicates the companies learned from the experience and were able to not only tell their stories better but to have better stories to tell.

Common reasons for a lack of support, he said, were the comparison of CEO pay to a company’s performance, poor pay practices, significant changes in the structure of CEO pay and poor disclosure.

Most companies just don’t explain their compensation strategies very well, said Charles Tharp, CEO of the Center. “The question is why do we overcomplicate it?”

One issue that can be misunderstood — and needs to be better communicated — is the issue of  “board discretion,” he said. Many investors see that as a way for companies to increase compensation, when, he says, it is more often used used to decrease it.

Bartl says it’s important to understand that the primary audience for executive-comp disclosures are the company’s largest institutional investors, proxy advisory firms (But Tharp notes, remember to design your comp strategies for your organization’s goals, not for the advisers, but “be sensitive to how they read these” and know their “hot spots.”), the media, regulators, competitors and employees.

The template for any effective pay summary, Bartl says, is to outline the company strategy, performance objectives and results, how pay varies with performance outcomes, actual pay vs. performance and changes going forward.

“Truly it’s two stories,” Tharp said. Companies need to validate they have a good executive comp strategy and they need to show what their plans are for the future. “It’s two pieces of the pie.”

 

Linking Compensation to People Strategies

“When you think about how you are going to draw talent into the organizations … rewards is going to be at least first or second on the list for most people,” said Jack Wiley, president of the Kenexa High Performance Institute, during a panel session on the importance of compensation to “a great people strategy” during WorldatWork’s Total Rewards 2012 conference in Orlando, Fla.

Joining him on the panel were Frank Wagner, director of compensation at Google; Ken Abosch, compensation practice leader at Aon Hewitt; and Emma Mon, manager for compensation in North America for Dow Chemical.

Compensation is not only going to be one of the top motivators for potential employees, but it is also one of the top costs of doing business, Abosch said.

So it’s necessary, he said, to have an articulated, written statement of the company’s compensation strategy; to have a “vision around compensation is critical.”

But, Mon said, “what works at the plant level is very different than what works at the engineering level.” Her organization uses an employee survey to gauge sentiment from the workforce as well as to communicate to the company’s leaders about compensation as well as growth opportunities.

“And people talk,” she said, so when Dow does take action to align compensation to the market, the message gets around the company.

Since Google has “all knowledge workers,” Wagner said, compensation is a way the company “communicates the value of what they are doing … [It] is really key to our value proposition of how we operate as an employer.” Key to that communication is the manager-employee relationship and the dialogue between them, he said.

“We have lots of conversations between employees and their managers,” Wagner said, although he notes some managers are better than others at communicating the value of the employee’s work and the compensation strategy.

Abosch said there needs to be “line of sight” — that employees must be able to see a direct relationship between the work they do, the impact on the company’s goals and the rewards they get back. Organizations need to review the way they set goals and make sure employee contributions align with employee compensation.

It may not be equal pay, he said, but it will be “equitable pay.”

Research has shown, Wiley said, that employees who feel they are fairly paid are three times more likely to be engaged, to feel they have a promising future and to stay at that employer.

 

Taking Back Bonuses Based on ‘Erroneous Data’

Following the $2 billion trading loss at JPMorgan Chase, the issue of clawbacks has “caught the public’s attention,” said Mike Melbinger, partner and global head of employee benefits and executive compensation, during a session at the WorldatWork conference.

And, he says, “When something catches fire like this, it’s almost always bad news.”

The current discussion of whether the lender will attempt to take back bonuses that were paid to executives may have a substantial impact because the U.S. Securities and Exchange Commission is still in the midst of writing regulations to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act.

That law requires the implementation of clawback policies when bonuses or compensation paid to executive officers is based on “erroneous data,” Melbinger said. Previously, the law said companies “may” clawback such compensation; now it says they “must.”

“There is a history of … bad facts making bad law,” in this area, said Melbinger, noting that Dodd-Frank is “very short and open ended, so all of the real action will be in the rules.”

The issue requires organizations to revisit their pay-for-performance philosophy, said Daniel P. Moynihan, a principal at Hay Group who focuses on executive compensation. Companies should also consider providing documented statements of their clawback policies and key design attributes to employees.

Another issue, of course, is how to get that money back, he said. A $100,000 employee who got a $10,000 bonus may no longer even have that money anymore, so one potential solution is to have a policy that allows the company to recoup that money from future incentives.

Even more problematic, he said, will be trying to clawback bonuses from employees who no longer work at the company. Since clawbacks can go back three years, employers may want to have departing employees sign an acknowledgement that a clawback could be a possibility.

The fallout of the JPMorgan Chase case will be interesting, said Irv Becker, national practice leader on executive compensation at Hay Group.

Unlike some previous clawback dramas, this wasn’t an issue of a “rogue trader,” but was instead an investment strategy that “wasn’t sufficiently safeguarded or implemented.”

Doing More With Less

“The problem with trying to do more with less is we all focus too much on the ‘less’ part, don’t we?” asked Mike Ryan, senior vice president of marketing and strategy at Madison Performance Group during a session at the WorldatWork Top Rewards 2012 Conference.

In creating a business case for recognition programs, HR leaders need to not only position such initiatives so they are more effective and efficient, but also so they are more strategic — linking to the business goals of the organization.

An Aon Hewitt survey, he said, found that most employees want to know how their work aligns with the overall business goals and “to be recognized for what they do” — as long as the compensation is at market rate.  

Managers are also extremely important in making sure employees feel their work is recognized, Ryan said. And the reason that doesn’t happen enough, is because “many organizations do not have systems that help people do that.”

Ryan’s co-presenter, Susan Brown, senior director of compensation at Siemens Corp., said helping managers reward and empower employees was a big part of her organization’s employee-recognition initiative.

The effort really began, she said, with a global rebranding campaign — that led to organization reorganizing its “hodgepodge” of internal branding and recognition programs that varied significantly among various parts of its company.

Her business case for the initiative focused on the lack of knowledge about what was actually being spent on recognition. There was a lack of financial control and the HR department had little insight or oversight of the various programs, she said. The new program would focus on getting the maximum impact of the dollars spent, as well as focus on compliance, control, consistency and context.

Starting with a customized technological system, the new recognition program, which includes cash and non-cash rewards, was designed to unite all of Siemens’ multiple entities. It was designed to focus on values and key goals — including innovation, collaboration and customer service, Brown said.

The number of approvals were decreased, but HR was put into the loop so there could be more oversight. Efforts were also made, she said, to make it as intuitive as possible for managers.

As a result, engagement scores in 2011 increased 3 percent, to 93 percent, while retention increased 5 percent, to 71 percent, she said.

 

 

Signs of Postive Growth?

Compensation surveys done by Pearl Meyer & Partners indicate “the rebound you hear about is actually starting to occur,” says Ken Cardinal, managing director in the firm’s Southborough, Mass. office.

In his work, he focuses exclusively on surveys and just released a book, Conducting Compensation & Benefits Surveys, which he co-authored with Beth Florin, also a managing director at the firm as well as president of its employee compensation and survey practices. The book was published by WorldatWork, which opened its Total Rewards 2012 Conference at the Gaylord Palms Resort in Kissimmee, Fla.

For years, Cardinal says, merit increases have been in the vicinity of 3 percent, but “now it appears they are moving north. I wouldn’t be surprised to see 4 percent or more. … It appears that hiring bonuses are picking up too.”

He bases his view on the many “club surveys” his firm does, in which competing companies provide compensation and benefits data, which is then used for benchmarking by all of them.

The areas most “poised for rebound,” he says, are Washington, D.C., Houston and Silicon Valley. It may also occur in Boston and New York City. Lagging behind are areas in the Rust Belt, although he notes Michigan has seen some positive growth from Ford and GM.

Diversity and Retirement Savings

A new report from Vanguard shows that blacks and Hispanics are more likely to take loans and hardship withdrawals from their 401(k)s than whites and Asians — but all of those groups borrow roughly the same amount. 

The report — Diversity and Defined Contribution Plans: Loans and hardship Withdrawals — states “there was no meaningful difference in 12-month loan default rates among groups. This higher incidence of loans among blacks and Hispanics occurs after controlling for income, account balance, and other demographic differences.”

The implications of such activity, according to Vanguard, is:

Loans and hardship withdrawals offer participants pre-retirement liquidity from DC plan savings, and are thought to increase plan participation and contribution rates. Our findings suggest that blacks and Hispanics disproportionately make use of these features, although the fraction of account wealth “at risk” among individual black and Hispanic participants is not meaningfully higher.

These findings may also reflect other unobservable characteristics, such as differences in financial literacy, trust in financial institutions, or constrained access to credit outside the plan.

For sponsors concerned about participants borrowing from retirement savings, one plan design strategy is to consider limiting participants to one loan outstanding and/or other modest borrowing restrictions. This strategy appears to reduce borrowing levels across all participants and all racial and ethnic groups.

Personally, while I understand employers are concerned about workers saving enough for retirement — and it certainly is a totally valid concern — I think it oversteps the boundaries for any employer to limit the availability of an individual’s own money when he or she may be in dire straits pre-retirement.

And if the worker is raiding their retirement savings to foolishly waste his or money now, that’s the individual’s choice. It’s a choice with consequences — and employers should attempt to increase financial literacy efforts — but I don’t believe most workers will be willing to cede control over their own funds.

And I wonder what the impact would be on participation in defined-contribution plans should that occur. That’s another choice with potential consequences.

The study looked at 2010 data for nearly 250,000 participants in seven large defined-contribution plans.

 

 

 

Think Twice Before Hitting Send …

That’s what the HR department should have done at Aviva Investors when it accidentally fired more than 1,300 employees. Yikes!

According to a story in the International Busines Times, someone at the London-based company ordered all of its employees to return company property and security passes, and leave the building — and wished them “all the best for the future.”

The email — which was supposed to be sent to one individual — went to workers in the United States, UK, France, Spain, Sweden, Canada, Italy, Ireland, Germany, Norway, Poland, Switzerland, Belgium, Austria, Finland and the Netherlands, according to IBT.

The error was discovered about 25 minutes after the email was sent. The HR department recalled it, and an apology was then sent to the entire staff — except to, I guess, that unfortunate worker who had been terminated.

Force Feeding

In the highly watched case of Brinker Restaurant Corp. v. Superior Court of San Diego County, the Supreme Court of California handed down its decision (PDF) this afternoon, ruling — bottom line — that employers must provide meal breaks, but don’t have to force their workers to take them:

On the most contentious of these, the nature of an employer’s duty to provide meal periods, we conclude an employer’s obligation is to relieve its employee of all duty, with the employee thereafter at liberty to use the meal period for whatever purpose he or she desires, but the employer need not ensure that no work is done.

Steven Katz, an employment attorney with Reed Smith, says the opinion is “a clear victory for common sense.”

In deciding that California law requires employers to give employees the opportunity to take a meal break, but does not force employees to take a meal break that they do not want to take, the Court declared the law to be precisely what employees and employers have always thought: it is the employee’s choice to take a meal break, not something forced on employees by the government. Employers no longer have to say “no” to employees who prefer, for example, to work through lunch and leave early to attend their child’s school play.

He says it frees employers from “the specter of frivolous lawsuits,” and is “truly a win-win for employees and employers. The only clear losers today are the lawyers who make money off of waging class-action lawsuits.”

Sarah Goldstein, an employment partner at Kaufman Dolowich Voluck & Gonzo, notes there are other issues reviewed by the court and that there “will very likely still be some growing pains as the courts deal with various scenarios, implementation strategies and hiccups in the aftermath of Brinker. ”

Employers should plan how they will train managers, employees and payroll staff, so that policies are ready to roll out when the decision is ultimately rendered. Also, as employers begin to conduct year-end policy and practice reviews for 2012 updates, they should review existing meal and rest period policies and practices and begin to consider what changes, if any, will need to be made pending the possible outcomes of this decision.